HomeMy WebLinkAbout26-Water Department CITY OF SAN BERNARDINO -REQUEST FOR COUNCIL ACTION
From: Stacey R. Aldstadt, General Manager Subject: Receive and File -Annual Audit of the Water
Departments Water and Sewer Utilities for the fiscal year
•pt: ~ Water ending June 30, 2006
Date: 1/31@007 M&CC Meeting Date: 2/20/2007
Synopsis of Previous Council Action:
Similar action taken each ear followin com lefion of the annual Audit R rt i
Y 9 P ~
Recommended motion:
the Mayor and Council receive and file the Annual Audit of the Water Departments Water and Sewer Utilities for
fiscal year ending June 30, 2006.
S gnature
Contact person: Stacev R. Aldstadt. General Manager Phone: 384-5091
Supporting data attached: Yes Want:
FUNDING REQUIREMENTS: Amount: N/A
Source:(Acct. No.) Water Department
fAcct. Description)
Finance:
Council Notes:
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75-0282 Agenda Item No.~_
CITY OF SAN BERNARDINO - rtEQUEST FOR COUNCIL ACTION
sra~ ~PORr .
Subject:
Annual Audit of the Water Department's Water and Sewer Utilities for the fiscal year ending
June 30, 2006. ~,
Background:
The fine of Mayer Hoffman McCann PC, has completed the Annual Audit of the Water
Department's Water and Sewer Utilities for the fiscal year ending June 30, 2006. This report
was presented to and accepted by the Board of Water Commissioners at their meeting of
January 23, 2007.
Financial Impact:
None.
Recommendation:
That the Mayor and Common council receive and file the completed Annual Audit of the Water
• Department's Water and Sewer Utilities for the fiscal year ending June 30, 2006.
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Conrad Government Services Division
Mayer
Hoffman
McCann P.C,
An IntlepenOent CPA Firm
MUNICIPAL WATER DEPARTMENT OF THE
CITY OF SAN f3ERNARDINO, CALIFORNIA
Financial Statements
Year ended June 30, 2006
(Short Form)
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Financial Statements
Year ended June 30, 2006
TABLE OF CONTENTS
Paae
FINANCIAL SECTION
Independent Auditors' Report 1
Management's Discussion and Analysis 5
Basic Financial Statements:
Statement of Net Assets 12
Statement of Revenues, Expenses, and Changes in Net Assets 15
Statement of Cash Flows 16
Notes to Basic Financial Statements 18
SUPPLEMENTARY INFORMATION
Other Information:
Board of Water Commissioners and Organization 47
Schedule of Insurance Coverage 48
Schedule of Water System Demographics 50
Schedule of Water Production 51
Schedule of Water Rates 53
Schedule of Sundry Water Statistical Data 54
Schedule of Service Area and Customers 56
Schedule of Sewer Rates and Statistics 57
Schedule -1992 Certificates of Participation, San Bemardino
Public Safety Authority 60
Schedule -1998 Refunding Sewer Revenue Certificates of Participation,
San Bernardino Public Safety Authority 61
Bond Schedule -General Obligation Waterworks Bonds, Series C 62
Report on Compliance and Other Matters and on Internal Control over
Financial Reporting Based on an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards 63
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N{ayer Floffman N~eCanr+ I'
An Independent CPA Firm
Conrad Government Services Division
. 2301 Dupont Drive, Suite 200
Irvine, California 92612
949-4742020 ph
949-263-5520 fx
viww.mhm-pacom ',
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Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying financial statements of each major fund of the Municipal
Water Department of the City of San Bernardino ("Department"), as of and for the year ended
June 30, 2006, which collectively comprise the Department's basic financial statements, as
listed in the table of contents. These financial statements are the responsibility of the
management of the Department. Our responsibility is to express opinions on these financial
statements based on our audit. The prior year summarized comparative financial information
has been derived from the Department's 2005 financial statements which were audited by
Conrad and Associates, L.L.P., who merged with Mayer Hoffman McCann P. C. as of January 1,
2006, and whose report dated November 4, 2005 expressed an unqualified opinion on the
Department's financial statements of each major fund. '
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinions.
As discussed in Note 1, the financial statements present only the Department and are not
intended to present fairly, in all material respects, the financial position of the City of San
Bernardino, California, and the results of its operations and cash flows of its proprietary fund
.types, in conformity with accounting principles generally accepted in the United States of
America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of each major fund of the Department of the City of San Bernardino, as of
June 30, 2006, and the respective changes in financial position and cash flows of each major
fund of the Department of the City of San Bernardino for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
1
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, Califomia
Page Two
The information identified in the accompanying table of contents as management's discussion
and analysis are not a required part of the basic financial statements, but are supplementary •-
information required by accounting principles generally accepted in the United States of
America. We have applied certain limited procedures, which consisted principally of inquiries of '
management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion
on it. --q
d
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Department's basic financial statements. The schedules listed in the
table of contents are presented for purposes of additional analysis and are not a required part
of the basic financial statements. These schedules have not been subjected to the auditing
procedures applied in the audit of the basic financial statements and, accordingly, we express
no opinion on them.
In accordance with Govemment Auditing Standards, we have also issued a report dated
October 25, 2006 on our consideration of the Department's internal control over financial
reporting and our tests of its compliance with certain provisions of laws, regulations, contracts,
grant agreements, and other matters. The purpose of that report is to describe the scope of
our testing of internal control over financial reporting and compliance and the results of that 6
testing, and not to provide an opinion on the internal control over financial reporting or on ;
compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards and should be read in conjunction with this report in
considering the results of our audit.
v~r~,~. iYJ~ls..~ P.C.
Irvine, California
October 25, 2006
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~~,+, MANAGEMENT'S DISCUSSION AND ANALYSIS
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MUNICIPAL WATER DEPARTMENT ,
- OF THE CITY OF SAN BERNARDINO, CALIFORNIA '
Management's Discussion and Analysis
(Continued)
Financial Hiahliohts: -
The net assets of the water fund increased $1.3,874 during the fiscal year ended June 30, 2006.
A net profit of $108 combined with an increase in contributed capital of $13,766 account for this
increase. Net profit decreased $741 compared with fiscal year ended June 30, 2005.
Operating revenues increased $1,211 on a 13% increase in water sales. Operating expenses i.:3
increased $2,541 with increases in administration, customer service, plant operations,
maintenance and environmental controls. Non-operating revenue increased $589 with
increases in grant funds offset by decreases in interest income. The combination of these
factors, describe the decrease in net profit of $741.
The net assets of the sewer fund increased $5,164 during the fiscal year ended June 30, 2006.
A net loss of $2,229 combined with an increase in contributed capital of $4,664 account for this ` ~
increase. The net loss increased $2,183 compared with fiscal year ended June 30, 2005.
Operating revenues increased $165 on slightly less usage of sewer facilities. Operating
expenses increased $1,344 with increases in plant operations, maintenance and environmental
controls. Non-operating revenue decreased $1,004 with reductions in interest income and
losses on disposed assets. The combination of these factors, describe the increase in net loss s
of $2,183.
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Financial Analvsis:
Assets. liabilities and net assets:
Water Sewer
Description 2006 2005 Variance 2006 2005 Variance 7
Current and other assets 91,573 108,044 (16,471) 41,007 41,150 (143)
Net capital assets 115,269 96,686 18,583 109,126 110,702 (1,576) ~7
Total assets 206,842 204,730 2,112 150,133 151,852 (1,719)
2
Long-term liabilities 76,040 79,698 (3,658) 43,036 46,597 (3,561)
Current liabilities 8,087 16,191 (8,104) 7,587 8,180 (593)
Total liabilities 84,127 95,889 (11,762) 50,623 54,777 (4,154)
Invested in capital assets,
net of related debt 106,036 95,362 10,674 66,080 54,505 11,575
Restricted 8,720 6,844 1,676 16,138 13,162 2,976
Unrestricted 7,959 6,635 1,324 17,292 29,408 (12,116)
Total net assets 122,715 108,841 13,874 99,510 97,075 2,435
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
As noted earlier, net assets may serve over time as a useful indicator of the Department's
financial position. At June 30, 2006, the water and sewer utilities, had assets that exceeded
liabilities by $122,715 and $108,841, respectively.
A large portion of the Department's net assets represent an investment in capital assets; such
as production, transmission and distribution facilities. Theses assets represent 86% of net
assets for the water utility and 67% of net assets for the sewer utility.
An additional portion of the Department's net assets represent resources that are subject to
external restrictions on how they may be used. These restrictions are for items such as debt
repayment and other legally restricted purposes. These assets represent 7% of net assets for
the water utility and 16% of net assets for the sewer utility.
- Finally, a portion of the Department's net assets represent resources that may be used to meet
the Department's ongoing obligations to creditors and customers. These unrestricted assets
amount to 7% of the net assets for the water utility and 17% of the net assets for the sewer
utility.
Revenues. expense and net eouity:
Water Sewer
Description 2006 2005 Variance 2006 2005 Variance
Operating revenues 21,760 20,549 1,211 20,363 20,199 164
Investment income 401 879 (478) 662 1,297 (635)
Nonoperating income (expense) 2,780 1,713 1,067 (2,736) (2,368) (368)
Operating expenses (24,834) (22,293) (2,541) ,(20,518) (19,174) (1,344)
Net profit 107 848 (741) (2,229) (46) (2,183)
_, Contributed capital 13,766 13,696 70 4,664 5,210 (546)
Increase in equity 13,873 14,544 (671) 2,435 5,164 (2,729)
Beginning assets, July 1 108,841 94,297 14,544 97,075 91,911 5,164
Ending assets, June 30 122,715 108,841 13,873 99,510 97,075 2,435
The Department's condensed statement of changes in net assets is presented above.
Total water utility sales for the fiscal year ended 2006 were $21,760; an increase of $1,211 over
last year. A large percentage of this increase is due to a 13% increase in water sales. Total
sewer utility sales amounted to $20,363 for the same period. Operating revenues from sewer
were up less than 1 % from the prior year.
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MUNICIPAL WATER DEPARTMENT
- OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis ~ ',
(Continued)
f,
Interest income was substantially reduced for both utilities. This is a result of lower cash
balances in both utilities combined with lower average investment rates.
Non-operating expenses varied by utility within the Department. The water utility received -3
approximately $976 in additional non-capital grant funding during the fiscal year ended 2006.
The sewer utility disposed of assets at a loss and negatively impacted non-operating expenses
by $466. ,,, ',
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Operating expenses for both utilities increased. Plant operations, including electricity (the
largest of the individual line item increases) was up $772 and $845 in water and sewer,
respectively. Maintenance costs rose significantly for both utilities; $681 and $254, a
respectively. In the water utility, administration and customer service costs rose $498 as well.
For the second straight year, the water utility has registered minor net profit. In June 2006, the
Board of Water Commissioners approved a water rate increase in support of increasing costs
and an expansive capital program. It is anticipated that this increase should improve the overall .
financial picture of the water utility. A sewer rate increase is anticipated during fiscal year 2007. P~
Capital assets:
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Water Sewer
Description 2006 2005 Variance 2006 2005 Variance -~
Land and easements 2,945 2,945 -0- 12,471 12,471 -0-
Wells and pumping plant 47,194 37,830 9,364 3,192 3,192 -0- z,~.
Distribution 65,938 55,335 10,603 -0- -0- -0-
Plant and facilities 1,627 1,410 217 150,874 149,718 1,156
Other capital 11,821 9,403 2,418 6,190 6,968 (778) '
C W I P 34,368 35,354 (986) 5,048 2,439 2,609
Total capital assets 163,893 142,277 21,616 177,775 174,788 2,987
Accumulated depreciation (48,624) (45,591) (3,033) (68,649) (64,086) (4,563)
Net capital assets 115,269 96,686 18,583 109,126 110,702 (1,576)
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The Department maintains an aggressive capital improvements program, particularly within the
water utility. During the prior fiscal year, significant additions were made in construction or new ,
wells, pumping stations and distribution pipe. The construction budget remains aggressive as
new construction in the "higher elevations" near "Verdemont" and the replacement of century
old infrastructure continues. Capital plans in the sewer utility were moderate during the prior
fiscal year. However, the expansion at RIX and the facilities surrounding it will cause higher
construction costs in the near future.
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MUNICIPAL WATER DEPARTMENT
. OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Management's Discussion and Analysis
(Continued)
Lono-term debt:
As of June 30, 2006, the water utility had $10,890 in long-term debt obligations; including
$9,158 in notes payable; $1,416 in compensated absences; $241 in leases payable and $75 in
bonds payable. Of that long-term debt amount, $1,520 is due during fiscal 2007.
As of June 30, 2006, the sewer utility had $47,155 in long-term debt obligations; including
$27,955 in certificates of participation (net unamortized discounts of $222); $18,864 in notes
payable; $558 in compensated absences. Of that long-term debt amount, $4,118 is due during
fiscal 2007.
Additional details regarding debt may be found by reviewing Note 5 of the Notes to Basic
Financial Statements provided in this document.
Requests for information:
This financial report is designed to provide a general overview of the Department's financial
condition. Questions concerning any information provided in this report or requests for
additional financial information should be addressed to the Finance Director, City of San
Bernardino Municipal Water Department, P.O. Box 710, San Bernardino, CA 92402.
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BASIC FINANCIAL STATEMENTS
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MUNICI AL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Net Assets
June 30,2006 -
(With comparative totals for 2005)
Water Sewer Interfund Totals
Utility UOlity Eliminations 5
Assets
Current assets:
Cash and investments (note 2) $ 7,139,551 76,117,429 - 23,256,980 29,798,178
Accounts receivable, not 3,835,274 2,488,813 - 6,324,087 12,003,254
Due from otheren8ties 1;482,123 314,694 - 1,797,017 3,952,653
Interfund receivable 86,135 - (86,135) - - r
Related parties receivable (note 8) 241,415 432,825 - 674,240 716,726 ,,
Inventory 1,709,910 - - 1,709,910 1,488,046
Prepaid expenses 32,784 1,136,203 - 1,168,987 1,255,942 .,~
Total current assets 14,527,192 20,490,164 (86,135) 34,931,221 49,214,799
Noncurrent assets:
Restricted assets:
Cash and investments (note 2):
Restricted for debt service 20,391 3,550,530 - 3,570,921 3,585,502
Restricted for capital-related fees 8,720,267 16,138,902 - 24,859,169 20,007,026
Restricted for consumer deposits 2,128,718 - - 2,128,718 2,194,334
Restricted for consent decree (note 12) 1,279,867 - - 1,279,867 18,213,244
Guaranteed investment contract (note 12) 16,482,039 - - 16,482,039
Interest receivable 218,184 80,765 - 298,949 273,568
Prepaid insurance -consent decree (note 12) 46,477,019 - - 46,477,019 49,866,440
Note proceeds held by state 934,000 - 934,000 4,373,005
Total restricted assets 76,260,485 19,770,197 - 96,030,682 98,513,119
Notes receivable 785,250 785,250 600,000
Capital assets (note 3):
Land and easements 2,944,972 12,470,740 - 15,415,712 15,415,712
Construction in progress 34,368,295 5,047,732 - 39,416,027 37,793,291
Water rights, wells and pumping plants 47,194,421 3,192,218 - 50,386,639 41,022,265 --
Distribution systems 65,937,908 - - 65,937,908 55,335,012
Building, plants and store yards 1,627,319 150,873,989 - 152,501,308 151,128,203
Tools and equipment 2,287,517 2,951,393 - 5,238,910 6,307,779 f,
Autos 3,398,129 1,174,776 - 4,572,905 3,987,313
Office leasehold improvements 1,919,987 - - 1,919,987 151,126
Office, computer, engineering
equipment 3,084,468 1,152,215 - 4,236,683 4,480,720
Radio and interoffice communication
equipment 283,602 99,138 - 382,940 389,041 '
Telemetry systems and equipment 612,196 619,268 - 1,231,464 627,862
Miscellaneous 233,534 193,015 426,549 426,549
Less accumulated depreciation and
amortization (48,623,614) (68,648,729) (117,272,343) (109,677,100)
Total capital assets (net of "
accumulated depreciation
and amortization) 115,268,934 109,125,755 224,394,689 207.387,773
Other assets:
Debt issue costs, net 218 301,507 - 301,725 349,519
Deferred call premium - 445,823 - 445,823 487,948
Total other assets 218 747,330 747,548 837,467
Total noncurrent assets 192,314,887 129,643,282 321,958,169 307,338,359
Total assets 206,842,079 150,133,446 (86,135) 356,889,390 356,553,158
(ConBnued)
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BEf2NARDINO, CALIFORNIA
Statement of Net Assets
(Continued)
Water Sewer Interfund Totals
Utility Utility Eliminations 2006 2005
Liabilities and net assets
Liabilities:
Current liabilities:
Accounts payable 2,757,265 2,122,802 - 4,880,067 6,458,024
Interfund payable - 86,135 (86,135) - -
Related parties payable (note 8) 538,354 153,540 - 691,894 810,571
Accrued expenses 2,946 10,818 - 13,564 24,179
Accrued compensation 914,195 366,568 - 1,280,763 1,402,988
Claims payable (note 10) 309,683 49,568 - 359,251 505,703
Consumer deposits 1,917,320 570 - 1,917,890 6,819,552
Current portion of compensated absences 996,116 380,493 - 1,376,609 1,488,705
Current portion of leases payable (note 5) 71,805 - - 71,805 68,626
Current portion of notes payable (note 5) 442,275 1,851,726 - 2,294,001 2,276,594
Current portion of certificates of
participation (note 5) - 1,885,753 - 1,885,753 1,790,753
Current portion of bonds payable (note 5) 10,000 - - 10,000 1,249,524
Accrued interest payable 127,447 679,485 - 806,932 869,122
Total current liabilities 8,087,406 7,587,258 (86,135) 15,588,529 23,704,341
:r
Noncurrent liabilities:
Consumer deposits 2,219,862 - - 2,219,862 2,248,240
Compensated absences 420,237 176,672 _ 596,909 638,017
Deferred revenue -consent decree (note 12) 64,442,890 64,442,890 67,975,325
Leases payable (note 5) 170,033 - - 170,033 241,220
Notes payable (note 5) 8,715,598 17,012,137 - 25,727,735 26,021,736
Certificates of participation (note 5) - 25,846,920 - 25,846,920 27,732,674
Bonds payable (note 5) 65,000 - - 65,000 75,000
Total noncurrent liabilities 76,033,620 43.035,729 119,069,349 126,932,212
Totalliabili8es 84,121,026 50,622,967 (86,135) 134,657,878 150,636,553
Net assets (note 13):
Invested in capital assets, net of related
debt 106,036,062 66,079,750 - 172,115,812 149,867,496
Restricted for:
Capital-related fees 8,720,267 16,138,902 - 24,859,169 20,007,026
Unrestricted 7,964,724 17,291,807 25,256,531 36,042,083
Total net assets $ 122,721,053 99,510,459 222,231,512 205,916,605
See accompanying notes to basic financial statements.
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Revenues, Expenses, and Changes in Net Assets
Year Ended June 30, 2006
(With comparative totals for 2005)
Water Sewer Interfund Totals
UGliry Utility Eliminations 2006 2005
Operating revenues:
Charges for services $ 19,702,252 19,492,372 .(24,650) 39,169,974 38,115,749
Other operating revenues 2,057,852 871,100 935,565 1,993,387 1,778,191
Total operating revenues 21,760,104 20,363,472 9( 60,215) 41,163,361 39,893,940
Operating expenses:
Administration and customer service 5,968,830 - - 5,968,830 5,432,798
Engineering, operations, and distribution
administration 953,836 1,449,322 (913,410) 1,489,748 1,330,430
Plantoperetions 5,771,976 8,957,220 (10,158) 14,719,038 13,107,905
Maintenance 1,748,898 2,759,868 (15,117) 4,493,649 3,548,257
Environmental control - 532,086 - 532,066 449,501
Distribution 3,479,171 - (140) 3,479,031 3,075,032
Engineering 1,873,653 - - 1,873,653 1,723,818
General, administration, and overhead 1,554,754 1,487,958 (21,390) 3,021,322 3,150,749
Depreciation and amortization (note 3) 3,482,432 5,331,731 - 8,814,163 8,769,676
Total operating expenses 24,833,550 20;518,185 (960,215) 44,391,520 40,588,166
Operating income (loss) (3,073,446) (154,713) - (3,228,159) (694,226)
Non-operating revenues (expenses):
Investment income 401,369 662,460 - 1,063,829 2,175,436
Rental income 89,761 29,181 - 118,942 124,151
Noncapitalgrantfunds 1,983,509 - - 1,983,509 1,001,047
Gain (loss) on asset disposition 693,500 (474,657) - 218,843 916,074
Interest expense and fiscal charges (365,636) (2,164,150) - (2,529,786) (2,748,256)
Amortization of issuance costs (36,855) (45,621) - (82,676) (91,829)
Other 421,317 (81,058) 340,259 120,097
Total non-operating revenues (expenses) 3,186,965 (2,074,045) - 1,112,920 1,496,720
Net profit (loss) 113,519 (2,228,758) - (2,115,239) 802,494
Capital contributions:
Capital grants 4,378,687 - - 4,378,687 7,009,839
Acquisition fees 2,205,524 - - 2,205,524 4,414,993
Capaciryfees 7,161,889 4,498,389 - 11,680,278 7,284,168
Other capital restricted fees - 165,657 - 165,657 197,564
Total capital contributions 13,766,100 4,664,046 - 18,430,146 18,906,564
Net assets:
Balance at beginning of year 108,841,434 97,075,171 - 205,916,605 186,207,547
Balance at end of year $ 122,721,053 99,510,459 222,231,512 205,916,605
See accompanying notes to basic financial statements.
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA '~
' Statement of Cash Flows
. Year Ended June 30, 2006
(With wmparetive totals for 2005)
Totals
Water Sewer 2006 2005
Cash flows from operating activities: ..,r
Cash received from customers $ 24,441,503 20,657,700 45,099,203 38,421,042
Rental income 89,761 29,181 118,942 124,151 .,,
Nonopereting miscellaneous revenue (expenses) 4,368,572 (555,715) 3,812,857 6,267,087
Settement received - - - 67,975,325 -~
Cash paid to employees for services (7,752,714) (10,491,475) (18,244,189) (16,797,890)
Purchase of insurance policy - - - (49,866,440)
Cash paid to suppliers of goods and services _(15.795,334) (6,015,596) (21,810,930) (7,612,273) ~
Net cash provided by operating activities 5,351,788 3,624,095 8,975,863 38,511,002
Cash flows from noncepital financing activities: ~
Noncapital grant proceeds 1,983,509 - 1,983,509 1,001,047
F
Net cash provided by noncapital financing activities 1,983,509 1,983,509 1,001,047
Cash flows from capital and related financing activities:
Capital fees received 9,387,413 4,664,046 14,051,459 11,896,725
Grent proceeds received 4,378,687 - 4,378,687 943,890 '~,
Cash paid to acquire capital assets (21,752,617) (2,986,346) (24,738,963) (23,210,300)
Principal paid on capital-related debt (1,765,988) (3,603,614) (5,369,602) (4,242,266)
Interest paid oncapital-related debt (396.183) (2,143,829) (2,540,012) (2,800,018) t! '~
Net cash provided by (used for) capital and related
financing activities (10,148,688) (4,069,743) (14,218,431) (17,411,969) ~,
Cash flows from investing activities:
Purchase of investment (16,482,039) - (16,482,039) -
Interest received 375,989 662,460 1,038,449 2,024,405 s
Net cash provided by investing activities _ (16,106,050) 662,460 (15,443,590) 2,024,405
Nat increase in cesh (18,919,441) 216.812 (18,702,629) 24,124,485 ass`
Cash and cash equivalents at beginning of year 38,208,235 32,116,299 70,324,534 46,200,049 I!
Cash and cash equivalents at end of year $ 19,288,794 32,333,111 51,621,905 70,324,534 `
(Continued) `~#
16
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Statement of Cash Flows
. (Continued)
Totals
Wafer Sewer 2006 2005
Reconciliation of cesh and cash equivalents to amounts
reported on the balance sheet:
Reported on the balance sheet:
Cash and investments $ 7,139,551 16,117,429 23,256,980 29,798,178
Restricted assets 76,260,485 19,770,197 96,030,682 98,513;119
Less restricted assets not meeting the definition of
cash equivalents:
Investment agreements - (3,473,750) (3,473,750) (3,473,750)
Govemmentinvestmentcontrect (16,482,039) - (16,482,039) -
Interestreceivable (218,184) (80,765) (298,949) (273,568)
Prepaid insurance - censent decree (46,477,019) - (46,477,019) (49.866,440)
Note proceeds held by state (934,000) (934,000) (4,373,005)
Cash and cash equivalents at end of year $ 19,288,794 32,333,111 51,621,905 70,324,534
Reconciliation of opereting income to net cash
provided by (used for) operating activities:
Operating income (3,073,446) (154,713) (3,228,159) (694,226)
Depreciation and amortization 3,482,432 5,331,731 8,814,163 8,769,676
Nonoperating miscellaneous revenue (expenses) 421,317 (81,058) 340,259 120,097
Rental income 89,761 29,181 118,942 124,151
Gain (loss) on asset disposition 693,500 (474,657) 218,843 916,074
Settlement received - - - 67,975,325
Purchase of insurence policy - - - (49,866,440)
Adjustments:
(Increase) decrease in accounts receivable 5,531,679 147,488 5,679,167 (5,524,705)
(Increase) decrease in due from other entities 2,132,060 23,576 2,155,636 (2,689,846)
(Increase)decreaseininterfund receivable (86,135) 29,802 (56,333) (32,018)
(Increase) decrease in related parties receivable 35,259 7,227 42,486 46,187
(Increase) decrease in inventory (221,864) - (221,664) (15,645)
(Increase) decrease in prepaid expenses 19,810 67,745 86,955 (1,233,322)
(Increase) decrease in note proceeds held by state 3,439,005 - 3,439,005 5,212,848
(Increase) decrease in notes receivable (185,250) - (185,250) -
(Increase)decrease in other assets (449,626) (769,293) (1,218,919) 5,487,628
Increase (decrease)in accounts payable (1,277,578) (492,773) (1,770,351) 3,208,041
Increase (decrease) in interfund payable (29,602) 86,135 56,333 32,018
_.- Increase (decrease) in related parties payable 126,696 (59,190) 67,506 102,711
Increase (decrease) in accrued expenses (11,641) 1,026 (10,615) (23,497)
Increase (decrease) in accrued compensation (229,132) (46,297) (275,429) 737,132
Increase (decrease) in Gaims payable (125,217) (21,235) (146,452) 60,329
Increase (decrease) in consumer deposits -current (4,901,662) - (4,901,662) 5,842,255
Increase (decrease) in consumer deposits -non curtent (28,378) - (28,378) (22,276)
Increase (decrease) in deferred revenue - - (21,495)
Net cash provided by operating activities $ 5,351,788 3,624,095 8,975,683 38,511,002
Noncesh Investinc Caoital and Fnnancinc Activities
There were no significant non-cash investing, capital and financing activities for the years ended June 30, 2006 and June 30,
2005.
See accompanying notes to basic financial statements.
t7
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
Year ended June 30, 2006
a
(1) Summary of Significant Accountino Policies
Resorting Entitv
The Municipal Water Department of the City of San Bemardino, California ("the
Department") is governed under the Charter of the City of San Bernardino. A Board of
Water Commissioners who is appointed by the Mayor of the City of San Bemardino has
certain limited powers with respect to the Department. The Department has no separate
organizing document and is a part of the legal entity of the City of San Bernardino.' The
Department of the City of San Bemardino operates two enterprise funds: the Water "
Utility Enterprise Fund (Water Utility) and the Sewer Utility Enterprise Fund (Sewer a
Utility). The Water Utility also provides administrative services and contracted services
to the Sewer Utility. The accounting policies of the Department conform to generally
accepted accounting principles (GAAP) as applicable to governments.
The preparation of these financial statements requires management to make estimates
and assumptions. Those estimates and assumptions affect the reported amounts of
assets, liabilities, revenues, and expenses, as well as the disclosure of contingent
assets and liabilities. Actual results could differ from those estimates. Management
also determines the accounting principles to be used in the preparation of the financial
statements. A description of the significant accounting policies employed in the
preparation of these financial statements follows:
i
Fund Accounting
The accounts of the Department are organized and operated on the basis of funds. A is
fund is an independent fiscal and accounting entity with aself-balancing set of accounts.
Fund accounting segregates funds according to their intended purpose and uses them
to aid management in demonstrating compliance with finance-related legal and
contractual provisions. The Department's financial statements include only enterprise
funds, which are a proprietary fund type. Enterprise funds are used to account for those
operations that are financed and operated in a manner similar to private business or
where the Board of Water Commissioners has decided that the determination of -~
revenues earned, costs incurred and/or net income is necessary for management
accountability.
Basis of Accounting +
Proprietary funds are accounted for on the flow of economic resources measurement
focus and use the accrual basis of accounting. Under this method, revenues are
recorded when earned and expenses are recorded at the time liabilities are incurred.
The Department applies all applicable GASB pronouncements in accounting and
reporting for its proprietary operations and applicable FASBs that occurred prior to
November 30, 1989.
18
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
Cash and Investments
Investments are reported in the accompanying balance sheet at fair value, except for
certain certificates of deposit and investment contracts that are reported at cost because
they are not transferable and they have terms that are not affected by changes in
market interest rates.
Changes in fair value that occur during a fiscal year are recognized as investment
income reported for that fiscal year. Investment income includes interest eamings,
changes in fair value and any gains or losses realized upon the liquidation or sale of
investments.
Cash for the Department is pooled with the City of San Bernardino for investment
purposes in order to maximize interest eamings. Such earnings are credited to the
various funds within the City of San Bemardino based upon average monthly cash
balances. The investment policies and the associated risk factors as they relate to the
Department are included in the City's Comprehensive Annual Financial Report.
For the purpose of the statement of cash flows, cash and cash equivalents include all
highly liquid investments (including restricted assets) with maturity of three months or
less when purchased.
Receivables
Trade receivables are shown net of an allowance for uncollectible accounts based on
management's estimate.
' Interfund Receivables and Pavables
Transactions between funds that are representative of lending/borrowing arrangements
outstanding at the end of the fiscal year are referred to as either "interfund
receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from
other funds" (i.e., the non-current portion of interfund loans). All interfund transactions
are eliminated for financial reporting purposes.
Inventories
Inventories are valued at the lower of cost, using the average-cost method, or market.
19
MUNICIPAL WATER DEPARTMENT
~, • - OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Sionificant Accountino Policies (Continued)
efi
Restricted Assets
Various resources of the Department are limited as to their use by law or by certificates n
of participation and bond covenants and are classified on the balance sheet as
restricted assets. Proceeds of the certificates of participation and bonds are restricted
for the construction of water and sewer system improvements and for repayments. -~,
Assessments collected from property owners are restricted for the payment of bond
principal and interest. Also, fees imposed on new real estate development are restricted
by law for the construction of capital improvements that benefit the development
projects.
Issuance Costs and Discount
Issuance costs, discounts, and deferred funding charges for certificates of participation
and bonds payable are being amortized using the effective interest rate method over the
term of the related certificate or bond or the straight-line method which approximates the
effective interest method.
Capital Assets
Property, plant, equipment and water rights are recorded at cost. The Department's f
policy is to capitalize all property having a value of $5,000 or more and a life expectancy
of 3 years or more. Major outlays for capital assets and improvements are capitalized ;
as projects are constructed. Material interest incurred during the construction phase is ;
reflected in the capitalized value of the asset constructed, net of interest earned on the '
invested proceeds over the same period, if any. Overhead costs are capitalized at the
rate of 28.9% for labor/benefits, 10% for materials/supplies, 2% for significant contracts
and are reflect in the capitalized value of the asset constructed. Depreciation has been
provided for using the straight-line method over the estimated useful lives of the related
assets. Useful lives for depreciation purposes are as follows:
Wells, pumping plants, reservoirs, and distribution system 8 to 50 years
Interceptor lines 50 years
Disposal plant 35 to 50 years
Leasehold improvements 5 to 25 years
Shops, offices, stores, and yards 10 to 20 years
Tools and equipment 4 to 20 years
Office equipment 5 to 20 years -
Communication equipment 8 to 10 years
Computer equipment 3 to 5 years
. Automotive equipment 3 to 15 years
zo
MUNICIPAL WATER DEPARTMENT
. OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
Capital Assets (Continued)
Equipment leased under capital leases is recorded at cost, and amortization has been
provided for using the straight-line method over the estimated useful life. Amortization is
included in depreciation expense.
Compensated Absences
Employees gain a vested right to accumulated unpaid vacation based on years of
service but cannot accumulate more than two years of accrued vacation. Once each
fiscal year, employees with at least three weeks of accrued vacation have the option of
receiving payment at their regular rate of pay for up to two weeks of regular paid
vacation. Employees' vacation benefits are recognized as a liability of the Department.
Sick leave is accumulated without limit for each employee at the rate of 3.7 hours per
pay period. Leave with pay is provided when employees are absent for health reasons.
Upon termination employees are entitled to 25 percent of accumulated sick leave with
five years of service and a minimum of 480 hours of accumulated sick leave. Upon
retirement or death, employees are entitled to 50 percent of accumulated sick leave up
to a maximum of 1,152 hours. Accrued sick leave benefits are recognized as a liability
of the Department.
Classification of Revenues and Expenses
Proprietary funds distinguish operating revenues and expenses from non-operating
items. Operating revenues and expenses generally result from providing services and
producing and delivering goods in connection with a proprietary fund's principal ongoing
' ' operations. The principal operating revenues of the Department's enterprise funds are
charges to customers for services. The Department also recognizes as operating
revenue the cost of connecting new customers to the system. Operating expenses for
the enterprise funds include the cost of services, administrative expenses, and
depreciation on capital assets. All revenues and expenses not meeting this definition
are reported as non-operating revenues and expenses.
Capital contributions consist of contributed capital assets and special charges that are
legally restricted for capital expenditures by state law or by the Board of Water
Commissioners action that established those charges.
Interfund Eliminations
The intertund eliminations column represents entries made to eliminate intertund income
and expenditure transactions between the water and sewer funds for the purposes of
consolidated financial statements.
zi
F
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
s*
(1) Summary of Significant Accounting Policies (Continued)
r-.
Comparative Data
Prior year data has been included where practical for comparison purposes only. The
prior year data does not represent a complete presentation in accordance with
accounting principles in the United States of America. „,~
Certain minor reclassifications of prior year data have been made in order to enhance
their comparability with current year figures.
=a
(2) Cash and Investments
Cash and investments as of June 30, 2006 are classified in the accompanying financial
statements as follows:
Statement of net assets:
Cash and investments $23,256,980
Cash and investments for debt service 3,570,921
Cash and investments for capital-related fees 24,859,169
Cash and investments for consumer deposits 2,128,718 ..y
Cash and investments for consent decree 1,279,867
Guaranteed investment contract 16.482.039 ; ~
Total cash and investments $71.577.694
Cash and investments as of June 30, 2006 consist of the following:
Cash on hand $ 5,700
Deposits with financial institutions 3,511,602
Investments 68.060.392
Total cash and investments ~ 71.577.694
22
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Investments Authorized by the California Government Code and the Entity's Investment
Policy
The table below identifies the investment types that are authorized for the Department
by the California Government Code (or the Department's investment policy, where more
restrictive). The table also identifies certain provisions of the Califomia Government
Code (or the Department's investment policy, where more restrictive) that address
interest rate risk, credit risk, and concentration of credit risk. This table does not
address investments of debt proceeds held by bond trustee that are governed by the
provisions of debt agreements of the Department, rather than the general provisions of
the California Government Code or the Department's investment policy.
Authorized by Maximum Maximum
Investment Types Investment Maximum Percentage Investment
Authorized by State Law Policv Maturi of Portfolio' In One Issuer'
Local Agency Bonds No 5 years None None
U.S. Treasury Obligations Yes 5 years None None
U.S. Agency Securities Yes 5 years None None
Banker's Acceptances Yes 180 days 40% 30%
Commercial Paper Yes 270 days 25% 10%
Negotiable Certificates of Deposit Yes 5 years 30% None
Repurchase Agreements No 1 year None None
Reverse Repurchase Agreements No 92 days 20% of base value None
Medium-Term Notes Yes 5 years 30% None
Mutual Funds No N/A 20% 10%
Money Market Mutual Funds Yes N/A 20% 10%
Mortgage Pass-Through Securities Yes 5 years 20% None
County Pooled Investment Funds No N/A None None
Local Agency Investment Fund Yes N/A None None
JPA Pools (other investment pools) No N/A None None
Guaranteed Investment Contract Yes N/A None None
' Based on state law requirements or investment policy requirements, whichever is more
restrictive. `
The Board of Water Commissioners has also authorized the investment of Consent
Decree funds (see note 12) in the state Local Agency Investment Fund (LAIF) and in
guaranteed investment contracts (GICs) with maturities in excess of five years.
23
I
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
.,,
(2) Cash and Investments (Continued)
Investments Authorized by Debt Agreements
Investment of debt proceeds held by bond trustee are governed by provisions of the-~
debt agreements, rather than the general provisions of the California Government Code ;
or the Department's investment policy. The table below identifies the investment types
that are authorized for investments held by bond trustee. The table also identifies certain
provisions of these debt agreements that address interest rate risk, credit risk, and
concentration of credit risk.
Maximum Maximum
Authorized Maximum Percentage Investment
Investment Tvge Maturity Allowed In One Issuer
U.S. Treasury Obligations None None None
U.S. Agency Securities None None None
Banker's Acceptances 180 days None None
Commercial Paper 270 days None None
Money Market Mutual Funds N/A None None
Repurchase Agreements 270 days None None
Investment Contracts 30 years None None
,Y
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the )
fair value of an investment. Generally, the longer the maturity of an investment, the
greater the sensitivity of its fair value to changes in market interest rates. One of the
ways that the Department manages its exposure to interest rate risk is by purchasing a
combination of shorter term and longer term investments and by timing cash flows from !d!
maturities so that a portion of the portfolio is maturing or coming close to maturity evenly
over time as necessary to provide the cash flow and liquidity needed for operations.
24
MUNICIPAL WATER DEPARTMENT
• OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Disclosures Relating to Interest Rate Risk (Continued)
Information about the sensitivity of the fair values of the Department's investments
(including investments held by bond trustee) to market interest rate fluctuations is
provided by the following table that shows the distribution of the Department's
investments by maturity:
Remaining Maturing (in Months)
12 Months 13 to 24 25 to 60 More Than
Investment Tvae Total Or Less Months Months 60 Months
Equity in City
investment pool(') $50,221,707 50,221,707 - - -
State investment pool 1,279,866 1,279,866 - - -
Guaranteed
investment contract 16,482,039 - - - 16,482,039
Held by bond trustee:
Federal agency
securities 76.780 76.780
Total $68.060.392 ;?17 3~3 - - 1Q3`3
(') -The pool typically includes a composition of short term and long term investments.
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation
to the holder of the investment. This is measured by the assignment of a rating by a
'' nationally recognized statistical rating organization. Presented below is the minimum
rating required by (where applicable) the California Government Code, the Department's
investment policy, or debt agreements, and the actual rating as of year end for each
investment type.
Minimum Rating as of Year End
Legal Not
Investment Tvge Total Ratin AAA AA Rated
Equity in City
investment pool $50,221,707 N/A - - 50,221,707
State investment pool 1,279,866 N/A - - 1,279,866
Guaranteed
investment contract 16,482,039 N/A - - 16,482,039
Held by bond trustee:
Federal agency
securities 76.780 AAA 76.780 - -
Total $68.060.392 Q 67.983.612
zs
MUNICIPAL WATER DEPARTMENT -
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements ,,,
(Continued)
(2) Cash and Investments (Continued)
€a
Concentration of Credit Risk
The investment policy of the Department contains no limitations on the amount that can
be invested in any one issuer beyond that stipulated by the California Govemment
Code. There were no investments in any one issuer (other than U.S. Treasury
securities, mutual funds, and external investment pools) that represent 5% or more of
total Department.
Custodial Credit Risk
Custodial credit risk for deposits (including bank investment contracts) is the risk that, in
the event of the failure of a depository financial institution, a govemment will not be able
to recover its deposits or will not be able to recover collateral securities that are in the
possession of an outside party. The custodial credit risk for investments is the risk that,
in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a
. govemment will not be able to recover the value of its investment or collateral securities
that are in the possession of another party. The California Govemment Code and the
Department's investment policy do not contain legal or policy requirements that would
limit the exposure to custodial credit risk for deposits or investments, other than the
following provision for deposits: The Califomia Government Code requires that a
financial institution secure deposits made by state or local governmental units by -'
pledging securities in an undivided collateral pool held by a depository regulated under
state law (unless so waived by the governmental unit).
The market value of the pledged securities in the collateral pool must equal at least
110% of the total amount deposited by the public agencies. California law also allows
financial institutions to secure the Department's deposits by pledging first trust deed
mortgage notes having a value of 150% of the secured public deposits.
For investments identified herein as held by bond trustee, the bond trustee selects the -'
investment under the terms of the applicable trust agreement, acquires the investment,
and holds the investment on behalf of the reporting govemment.
26
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(2) Cash and Investments (Continued)
Investment in State Investment Pool
The Department is a voluntary participant in the Local Agency Investment Fund (LAIF)
that is regulated- by the California Government Code under the oversight of the
Treasurer of the State of California. The fair value of the Department's investment in
this pool is reported in the accompanying financial statements at amounts based upon
the Department's pro-rata share of the fair value provided by LAIF for the entire IAIF
portfolio (in relation to the amortized cost of that portfolio). The balance available for
withdrawal is based on the accounting records maintained by LAIF, which are recorded
on an amortized cost basis.
_,,,
:va
z~
. MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued) y.
(3) Capital Assets
Capital asset activity for the year ended June 30, 2006 is as follows:
-w
Balance at Balance at a
Julv 1.2005 Additions Deletions June 30. 2006
Capital projects, not being depreciated: " t
Land and easements $ 15,415,712 - - 15,415,712
Construction in progress 37.793.291 27.955.926 (26.333.190) 39.416.027
Total capital assets, not being depreciated 53.209.003 27.955.926 (26.333.190) 54.831.739
Capital assets, being depreciated: `
Water rights, wells and pumping plants 41,022,265 9,456,419 (92,045) 50,386,639
Distribution systems 55,335,012 10,612,841 (9,945) 65,937,908
Building, plants and store yards 151,128,203 1,387,559 (14,454) 152,501,308
Tools and equipment 6,307,779 371,577 (1,440,446) 5,238,910
Autos 3,987,313 800,646 (215,054) 4,572,905
Office leasehold improvements 151,126 1,768,861 1,919,987
Office, computer, engineering equipment 4,480,720 137,612 (381,649) 4,236,683
Radio and interoffice communication equipment 389,041 - (6,101) 382,940 c q
Telemetry system and equipment 627,862 603,602 - 1,231,464 ! x
Miscellaneous 426.549 426.549
Total capital assets, being depreciated 263.855.870 25.139.117 (2.159.694) 286.835.293
Less accumulated depreciation for.
Water rights, wells and pumping plants (18,994,822) (1,425,652) - (20,420,474)
Distribution systems (22,374,311) (1,311,477) 230,444 (23,455,344)
Building, plants and store yards (59,134,183) (4,770,132) 16,105 (63,888,210)
Tools and equipment (3,808,113) (334,876) 745,577 (3,397,412)
Autos (2,304,718) (348,591) 161,837 (2,491,472) l
Office leasehold improvements (70,247) (12,666) - (82,913)
Office, wmputerand engineering equipment (2,272,053) (511,535) 59,618 (2,723,970)
Radio and interoffice computer equipment (252,113) (22,353) 5,339 (269,127)
Telemetry system and equipment (237,922) (64,559) - (302,481)
Miscellaneous (228,618) (12.322) - (240.940) '
Total accumulated depreciation (109.677.100) (8.814,163) 1.216.920 (117.272.3431
Total capital assets, being depreciated, net 154.178.770 16.324.954 (940.774) 169.562.950
Net property, plant and equipment $207.387.773 44.2(38.@84 (27273 964) 224.394.689
28
MUNICIPAL WATER DEPARTMENT i
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(3) Capital Assets (Continued)
Significant project commitments as of June 30, 2006 are as follows:
Cumulative Unexpended ~i
Amount Expenditures ~
Proiect Description Authorized June 30.2006 Commitments ~
Water Fund:
1720 Zone West Transmission Main $5,590,000 135,665 5,454,335
Sewer Fund:
RIX Facility Expansion $8,000,000 754,687 7,245,313
(4) Operatino Leases ~
The Department leases office space from the City of San Bernardino under a
noncancellable operating lease that terminates on March 31, 2012. The following is a
schedule of minimum lease payments as of June 30, 2006:
Office Soace
For the vear endino June 30 Water Sewer Total
2007 $156,347 21,479 177,826
2008 156,347 21,479 177,826
2009 156,347 21,479 177,826
2010 156,347 21,479 177,826
. 2011 156,347 21,479 177,826
2012 117,365 16.004 133.369
$~29~1. 123.399 42a.. 2 4s
Rent expense was $177,826 and $177,826 at June 30, 2006 and 2005, respectively.
29
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements -
(Continued) ''"
(5) Lona-Term Debt
The following is a summary of changes in long-term debt obligations for the year ended
June 30, 2006:
Amounts Amounts Due
Balance at Balance at Due Within Beyond *'
Julv 1.2005 Additions Reductions June 30. 2006 One Year One Year
"3
Compensated absences $ 2,126,723 - (153,205) 1,973,518 1,376,609 596,909
Lease payable 309,846 - (68,008) 241,838 71,805 170,033
Notes payable 30,238,330 - (2,216,594) 28,021,736 2,294,001 25,727,735
Certificates of
Participation 29,770,000 - (1,815,000) 27,955,000 1,910,000 26,045,000
Less deferred amounts:
Unamortized discounts (246,573) - 24,246 (222,327) (24,247) (198,080)
Bonds payable 1,345,000 - (1,270,000) 75,000 10,000 65,000
Less deferred amounts:
Unamortized discounts
and advance refunding 20 475) 20.475 - - -
Lease/Purchase Payable
r
California First Leasing Corporation
Maturity date: 2009
Interest rate: 3.68% "~
Repayment provisions: Quarterly principal and interest
Payments of $19,772.00
Balance $241,838 '
Less current portion 7( 1.805)
Long-term portion $170.033
On December 28, 2004, the Department entered into a master equipment
lease/purchase agreement with California First Leasing Corporation for furniture and
equipment for the 5"' Floor Remodeling Project, in the amount of $363,000. The
furniture and equipment are pledged as collateral for the term of lease/purchase
agreement.
30
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Lono-Term Debt (Continued)
Notes Pavable
California Infrastructure and Economic Development Bank
Maturity date: 2022
Interest rate: 3.34%
Repayment provisions: Annual principal and interest
payments of $738,147
Balance $9,157,873
San Bernardino Valley Municipal Water District
Original amount: $5,084,729
Maturity date: 2013
Interest rate: 7.25%
Repayment provisions: Annual principal and interest
payments of $456,250
M Balance 2,437,576
State Water Resources Control Board (SWRCB)
Original amount: $4,015,216
Maturity date: 2011
Interest rate: 3.3%
Repayment provisions: Annual principal and interest
payments of $279,293
Balance 1,268,197
State Water Resources Control Board (SWRCB)
Original amount: $25,978,599
- Maturity date: 2016
Interest rate: 2.8%
Repayment provisions: Annual principal and interest
payments of $1,758,901
Balance 15.158.090
Total notes payable 28,021,736
Less current portion (2.294,001)
Long-term portion $25.727.735
31
I
. MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
,~
(5) Lono-Term Debt (Continued)
Y5:
f?
On March 18, 2004, the California Infrastructure and Economic Development Bank
(CIEDB) issued its Infrastructure State Revolving Fund Revenue Bonds to provide
funding for a portion of the costs of Phases I and II of the Water System Reliability °
Schedule of Improvements including transmission mains, booster stations, and a
reservoir. Installment Sale Agreement No. 02-027 between the Department and the
CIEDB was pledged as security for the bonds. The Department sets aside water .l
revenues to make installment payments on the bonds as due. -
The State Revolving Fund loans between the State Water Resources Control Board and ';
the Santa Ana Watershed Authority provided funding for the construction of the San
Bernardino/Cotton Rapid Infiltration Extraction (RIX) Project. The loan agreements were
amended in April 2001 to transfer the loan obligations to the successors in interest,
being the City of San Bernardino Board of Water Commissioners, and the City of
Colton. The loahs require the Department to establish a Wastewater Capital Reserve
Sinking Fund (WCRF) for expansion, major repair or replacement of wastewater
treatment works at one-half of one percent of the total loan amount over a period of ten
years. The Department has decided to use the revenues of the Sewer Utility Fund , y
towards repayment of the loans.
a
Certificates of Participation
,_;
Annual
Interest Issue Maturity Original Principal
Rates Date Date Amount Installments Balance
1998 Refinancing Sewer 3.95% 1998 2017 $36,230,000 $1,505,000
5.00% $3,220,000 $27,930,753
Less current portion
payable from restricted assets (1,910,000)
deferred unamortized discount 24.247
(1.885.7531
Long-term portion
payable from restricted assets 26,045,000
deferred unamortized discount (198.080)
Long-term portion, net of unamortized
discount $25_Bds 920
It has been determined that the amount of $74,422 was due under Internal Revenue
Code Section 148(f)(4)(B) for the temporary investments of the 1998 Refinancing Sewer
. Revenue Certificates of Participation and for arbitrage rebate.
32
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Lono-Term Debt (Continued)
In 1998, the Department refinanced the acquisition and construction of certain capital
improvements which were originally financed by the 1992 Sewer Certificates of
Participation, dated February 1, 1992. The refinancing was accomplished by issue of
the 1998 Refunding. Sewer Revenue Certificates of Participation in the amount of
$36,230,000. The proceeds of the 1998 Certificates were invested and used to pay
interest on the 1998 issue until February 1, 2001. The 1992 Certificates were called on
February 1, 2001 at a prepayment premium of two percent. The funds from the 1998
issue were used to pay off the 1992 Certificates. The Department will now begin paying
the installment payments on the 1998 Certificates from the net revenues on the Sewer
System.
The Department has covenanted that it will budget amounts sufficient to make all
installment payments due.
The required reserve for the 1998 Refunding Sewer Revenue Certificates of Participation
is $1,910,000. As of June 30, 2006, the reserve was fully funded.
Costs related to the issuance of the 1998 Certificates have been paid out of the proceeds
of the issue.
Bonds Pavable
Annual
Interest Issue Maturity Original Principal
Rates Date Date Amount Installments Balance
Waterworks Bonds, 7.75% 1968 2013 $150,000 $ 5,000
- Series C to
$15,000 75000
Total bonds payable $75,000
Less current portion payable from
restricted assets 10 000)
Long-term portion $~j~Q00
The Department has covenanted to set aside Water revenues to make installment
payments on the Bonds as due. A financial guaranty insurance policy has been issued,
and accordingly, no cash reserve balance is required to be established.
33
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
,.
(5) Long-Term Debt (Continued) ~,~
The annual requirements to amortize long-term debt subsequent to June 30, 2006 are x'`{
as follows:
June 30 Principal Interest Total =
Lease payable 2007 $ 71,805 9,797 81,602
2008 73,843 5,246 79,089 _w
2009 76,598 2,491 79,089
2010 19.592 180 19.772 :,
241.838 17.714 259.552
Notes payable 2007 2,293,717 976,348 3,270,065
2008 2,373,955 894,783 3,268,738
2009 2,457,461 809,906 3,267,367
2010 2,544,396 721,554 3,265,950
2011 2,634,928 611,198 3,246,126
2012-2016 11,709,699 1,823,780 13,533,479
2017-2021 3,283,613 498,183 3,781,796
2022-2025 723.967 26.352 750.319
28.021,736 6.362.104 34.383.840
,~
c
Certificates of participation 2007 1,910,000 1,357,185 3,267,185
2008 2,010,000 1,275,055 3,285,055
2009 2,125,000 1,174,555 3,299,555
2010 2,240,000 1,078,930 3,318,930
2011 2,365,000 973,650 3,338,650
2012-2016 14,085,000 2,992,388 17,077,388
2017-2021 3.220.000 161.000 3.381.000
27.955.000 9.012.763 36.967.763
Bonds payable 2007 10,000 5,813 15,813
2008 10,000 5,038 15,038
2009 10,000 4,263 14,263
2010 10,000 3,488 13,488
2011 10,000 2,713 12,713
2012-2016 25.000 3.100 28.100
75,000 24.415 99.415
56.293.574 ~9fi Zl
34
I
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(5) Lono-Term Debt (Continued)
Compensated Absences
The Department's policies relating to compensated absences are described in note 1.
This liability, amounting to $1,973,518 and $2,126,723 at June 30, 2006 and June 30,
2005, respectively, will be paid in future years from future resources from the water and
sewer funds.
(6) Defined Benefit Pension Plan
Qualified employees are covered under amultiple-employer contributory retirement plan
maintained by an agency of the State of California, California Public Employees'
retirement System (PERS).
Plan Description
The Department is a part of the City of San Bernardino. The City contributes to PERS,
an agent multiple-employer public employee retirement system defined benefit pension ,
plan administered by PERS. All employees who work 1,000 hours or more are eligible
to participate. The plan provides retirement and disability benefits, annual cost-of-living
adjustments, and death benefits to plan members and beneficiaries. Benefit provisions
are established by state statutes, as legislatively amended, within the Public Employees'
Retirement Law. PERS issues a separate comprehensive annual financial report that
inGudes financial statements and required supplementary information. Copies of the
PERS annual financial report may be obtained from the PERS Executive Office, 400 "P"
Street, Sacramento, California 95814. PERS also issues a separate report on the
actuarial valuation of the plan of the City of San Bernardino, which is available at the
Department. Additional information regarding the City's participation in PERS can be
found in the City's financial statements.
(7) Post-Retirement Health Care Benefits
In addition to the pension benefits described in note 6, the Department provides the
minimum monthly premium for post-retirement medical-health care benefits to each
retiree that meets the eligibility criteria for coverage under a department group health
insurance plan. The retirees may continue to participate in the health care plan provided
the retirees make the arrangements for premiums to be paid with the group plan
administrator. This benefit is dependent upon the continued approval of the insurance
carriers.
35
MUNICIPAL WATER DEPARTMENT
- OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued) i
k-n
(7) Post-Retirement Health Care Benefits (Continued) fa
-
For those retirees who retired on or after attaining age 55 with a minimum of 15 years of "''S
service, the Department's contribution is paid directly to the group plan administrator for
a portion of the premium up to $511 per month. Premium amounts in excess of the '~`
contribution are paid by the retirees. Currently, thirty-eight Water Utility retirees and four -~
Sewer Utility retirees are receiving the benefit. For those retirees who are not eligible to
receive the monthly contribution and currently enrolled in the Department health group
insurance plan, the Department pays to the group plan administrator the amount ,
equivalent to the then current minimum eligibility amount from the previous health plan
coverage with PERS. This amount is currently $64.60 per month effective April 1, 2006
and is anticipated to escalate annually. Currently, eighteen retirees are receiving this
benefit. During the year ended June 30, 2006, and June 30, 2005, expenses of .
$184,913 and $116,658, respectively, were recognized for post-retirement health care
benefits and administrative costs for the Water and Sewer Utilities.
(8) Related Partv Transactions
Following is a summary of transactions and balances with the City of San Bernardino
and its various departments as of and for the years ended June 30, 2006 and 2005: a
Receipts 2006 2005 -
City of San Bernardino
Revenue from water charges $ 45,301 48,767
Revenue from sewer charges 54,874 58,601
Revenue from geothermal charges 16,326 22,545
Billing and collection charges -refuse 192,699 185,375
Billing and collection charges -storm drain 5,168 5,094
Cost reimbursement 3,000 6,385
Reimbursement -sale of land 253,656 392,692
Interest income 1,634,912 1,728,917
Economic Development Aaency
Revenue from geothermal charges 763 916
Reimbursement -sale of land 575.232 ,
Total receipts from related parties $2
2~ ~ ;?24
36
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(8) Related Party Transactions (Continued)
Payments 2006 2005
Citv of San Bemardino
10% water revenue $1,933,876 1,889,149
Sewer collection system maintenance 3,019,146 2,825,844
Worker's compensation -administration charges 136,238 138,216
Printing services 9,583 3,827
Postage 7,403 10,435
City Hall rent 177,826 177,827
Phone charges 126,929 124,398
Refuse disposal service 65,202 88,171
Civil service 113,000 113,000
Legal serviceslaffirmative action 197,750 190,000
Rideshare coordination 5,000 5,000
Employee assistance 9,400
Data processing services 433,873 408,873
Police & Fire Protection 500,000 500,000
Revenue transfer -land sale 60,000 272,388
Facilities Management -new construction 10,000 25,000
Fuel charges 26,594 37,523
Other services 964 1,472
Miscellaneous charges 984 1.554
Total payments to related parties •677
Receivables
The receivables to the City of San Bernardino are classified within the Statement of Net
Assets as follows:
Related parry receivable $ 674,240 716,726
Accounts receivable, net 33,890 77,707
Due from other entities 34.557 32.879
Total receivables from related parties $ 742.687 827.312
Payables
The payables to the City of San Bernardino are classified within the Statement of Net
Assets as follows:
Related party payable $ 691,894 810,571
Accounts payable 888,770 1,665,802
Claims payable 359.251 505.703
Total .payables to related .parties 1.939.915 2
$~Q.
37
- 1
y
MUNICIPAL WATER DEPARTMENT
. OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(8) Related Party Transactions (Continued)
The Department collects and transmits to the City of San Bernardino ten percent of -
collections on gross water revenue and one hundred percent of collections on sewer
collection system maintenance charges from Sewer Utility customers. These °'~
remittances are included in the related party payments shown above. ;
(9) Joint Venture
West End Water Development. Treatment and Conservation Joint Powers Authority
On August 15, 1990, the City of San Bernardino joined the West End Water
Development, Treatment and Conservation Joint Powers Authority (WEJPA) as a
financing vehicle for construction of water facilities. A separate three-member Board
consisting of one representative from each agency's governing body governs the
WEJPA. The financial statements for the WEJPA are available at the Department. The
Departments' investment in the joint venture is included in the property, plant, and
equipment of the Department. The financial statements of WEJPA are available at
West Valley Water District, 855 West Base Line, Riatto, California 92736. The joint
venture is not experiencing fiscal stress.
San Bemardino Public Safety Authority -
On April 1, 1968, the City of San Bernardino and the County of San Bernardino formed
the San Bernardino Public Safety Authority (PSA), a joint powers authority, as a
financing vehicle to construct (1) public safety buildings and (2) improvements to the
wastewater treatment plant.
According to the original joint powers agreement, title to the PSA-constructed
wastewater treatment facility will automatically vest in the City with the residual cash
being transferred to the City after the bonds are repaid. A separate Board consisting of
three members, one appointed by the San Bernardino City Council and two members -
appointed by the San Bemardino County Board of Supervisors, governs PSA. Effective
with the transfer of the Sewer Utility to the Department, all the assets and activities of
PSA related to the wastewater treatment plant were also transferred to the Department ,
pursuant to the enabling resolution of October 1973 and are included in the property,
plant, and equipment of the Sewer Utility. The financial statements of PSA are available
at the Clerk of the Board of Supervisors, County of San Bernardino, 385 N. Arrowhead
Avenue, 2"d Floor, San Bernardino, California 92402. The joint venture is not
experiencing fiscal stress.
38
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA i
Notes to Basic Financial Statements
(Continued)
(9) Joint Venture (Continued)
ColtonlSan Bernardino Regional Tertiary Treatment and Water Reclamation Authority
On August 2, 1994, the City of San Bernardino, through the Department, formed a joint
powers authority with the City of Colton to construct, operate, use, and maintain tertiary
wastewater treatment, disposal, and water reclamation systems, including the Regional
Rapid Infiltration and Extraction Facility (RIX). The ColtonlSan Bemardino Regional it
Tertiary Treatment and Water Reclamation Authority is governed by a separate Board
consisting of four members, two of whom are appointed by the City of San Bemardino
through the Department's Board of Water Commissioners and two appointed by the City
Council of the City of Colton. Construction of the project was administered by the Santa
Ana Watershed Project Authority (SAW PA) and was substantially completed during
1996. Administration and operation of the project was turned over to the ColtonlSan
Bernardino Regional Tertiary Treatment and Water Reclamation Authority at that time.
Title to the property will be transferred upon final resolution of construction issues. Each
of the cities, San Bemardino and Colton, has an undivided interest in the real property
and any related debt of the RIX project based on a split of 80 percent and 20 percent,
respectively. The Departments' investment in the joint venture is included in the
property, plant, and equipment of the Department. The financial statements are
available at the Department. The joint venture is not experiencing fiscal stress.
(10) Construction and Other Significant Commitments
Commitments
Commitments in the form of signed contracts for costs to complete construction projects
a' or other improvements amounted to $7,397,958 and $16,007,325 at June 30, 2006 and
June 30, 2005, respectively.
Risk Management
The Department's risk management activities are recorded in both of the utility funds.
Significant losses are covered by commercial insurance for all major events except
workers' compensation, for which the Department retains risk of loss in conjunction with
the City of San Bemardino's risk management program for workers' compensation. For
insured events, there have been no significant reductions in insurance coverage.
Settlement amounts have not exceeded insurance coverage for the current year or the
three prior years.
39 .
MUNICIPAL WATER DEPARTMENT
- OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
- (Continued)
(10) Construction and Other Significant Commitments (Continued) R
Workers' Compensation Claims Liabilities
The Department records an estimated liability for workers' compensation. Claims
liabilities are based on estimates of the ultimate cost of reported claims (including future
claim adjustment expenses) and an estimate for claims incurred but not reported based
on historical experience. Workers' compensation unpaid claims liabilities are not
discounted.
The following represents the changes in approximate aggregate liabilities for the
Department for the year ended June 30, 2006:
Total
Liability balance, July 1, 2005 $505,703
Claims and changes in estimates (21,468)
Claim payments 124 984)
Claims payable, June 30, 2006 ~ +
y
The following represents the changes in approximate aggregate liabilities for the
Department for the year ended June 30, 2005:
Total .a
Liability balance, July 1, 2004 $445,374
Claims and changes in estimates 207,470
Claim payments 147 141)
•
Claims payable, June 30, 2005
(11) Contingencies
f
Federal and State Grants
Amounts received or receivable from grant agencies are subject to audit and adjustment
by grantor agencies, principally the federal and state governments. Any disallowed
claims, including amounts already collected, may constitute a liability of the Department.
The amount, if any, of expenditures which may be disallowed by the grantor cannot be
determined at this time although the Department expects such amounts, if any, to be
immaterial.
w
40
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(12) Consent Decree
In 1996, the Department filed a complaint against the United States of America,
Department of the Army to recover damages, response costs and other available
remedies relating to contamination alleged to have originated at a World War II Army
installation known as Camp Ono. On March 15, 2005, the United States District Court,
Central District, ordered entry of the consent decree in the matter of City of San
Bernardino v. United States of America. The consent decree settles the City's and the
state's claims arising from groundwater contamination allegedly caused by the United
State's Department of the Army. The consent decree contains a number of provisions
obligating the City (the City of San Bernardino Municipal Water Department) to operate
and maintain the Newark Groundwater Superfund site.
The consent decree provided for the payment of $69 million from the United States
Department of the Army (Army) to the City of San Bernardino for performance of the
work outlined in the consent decree. Essentially, upon entry of the consent decree, the
City of San Bernardino, through its Water Department, received title to all of the facilities
constructed by the United States Environmental Protection Agency (EPA) for the
Newmark Groundwater Superfund Site and agreed to operate and maintain the
groundwater extraction and treatment system (the Newmark Groundwater Superfund
Site), for a period of fifty (50) years. The $69 million dollar payment by the Army
consisted of $59 million for operation and maintenance (O&M) and $10 million for
construction of certain capital facilities needed in the future.
The funds received are subject to strict limitations how they may be spent.
Pursuant to the Consent Decree, the Construction funds in the amount of $10 million,
including interest or other returns actually earned on that account, have been set aside
~, to be used only for (i) funding construction of treatment and directly related transmission
systems that expanded the Department's capacity to deliver potable water to its
residents, and (ii) funding for work performed by the Department to complete
construction of the Muscoy Operable Unit extraction system. The Department shall
complete the construction of the Muscoy Operable Unit extraction system, first using
$6,249,000 currently obligated by the EPA for that purpose, and then using consent
decree funds. Consent decree funds cannot be used for vests incurred by the
Department to operate, maintain, repair or retrofit components of the Newmark
Groundwater Superfund Site extraction and treatment systems that were constructed by
EPA.
At the time of receipt, the Department recorded the consent decree proceeds as
deferred revenue. Revenue associated with the consent decree are recognized at the
time that eligible expenses are incurred.
41
MUNICIPAL WATER DEPARTMENT
- OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(12) Consent Decree (Continued)
With the $69 million dollar payment from the Federal government, the Department used
$50+ to purchase a blended insurance policy from AIG Insurance. This policy provides
both pollution legal liability coverage and a financial vehicle/insurance policy blend that
provides cost cap coverage for the first 30 years of the Department's 50-year
obligations. This policy pays the Department back for itemized expenses and, when
appropriate, for the capital expenses that will be incurred. The payment made to ';
purchase this insurance has been recorded as prepaid insurance on the balance sheet
of the Department's Water Fund. This asset is amortized over the period of benefit as
costs are incurred. In the prior year (after the purchase of the AIG Insurance), ~
approximately $18 million of the remaining consent decree funds were invested in a
LAIF (Local Agency Investment Fund) account in the investment pool maintained by the
State of California.
During the fiscal year, the Department entered into the Guaranteed Investment Contract
(GIC) on March 17, 2006 with AIG Match Funding Corporation (AIGMFC). The
Department transferred $16,482,039 of the excess consent decree funds held in the
LAIF account into the interest bearing Escrow Fund investment with AIGMFC. An
interest rate of 4.95% per annum is calculated based on the average balance of the
amount outstanding of the investment. All calculations of interest due are computed on
the basis of a 360-day year composed of twelve thirty-day months beginning on July 1,
2006. AIGMFC will pay out to the Department years 31-50 of the obligations based on ~ a
the calculated repayment of principal and interest schedule of the GIC. The repayments
begin annually from the year 2035 through 2056.
The County of San Bernardino (County) paid to the. Department a sum of $1,000,000,
which the Department must use solely to perform obligations under the consent decree,
including use to help purchase a long term financial instrument. The amount is a
settlement between the County and Department for the joint defense of the Newark
Ground Water Contamination lawsuit with the Army. Based on the claim of the Army,
the Cajon Landfill contributed to the contamination, which is owned and operated by the
County. The County had an interest in the outcome of the lawsuit and entered into in ~'
the joint defense agreement with the Department. At the fiscal year end, the settlement
amount has been invested into the LAIF account to be pooled with the excess consent
decree funds.
42
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(12) Consent Decree (Continued)
The distribution and status of the consent decree funds as of June 30, 2006 are as
follows:
Guaranteed
AIG Investment Total
Insurance Contract Invested in Settlement
Policy LIB LAIF Proceeds
Operations and
maintenance $41,137,188 - 17,862,812 59,000,000
Construction 9,753,927 246.073 10.000.000
Total 50,891,115 - 18,108,885 69,000,000
Total eligible costs to
date (4,414,096) - (3,220,000) (7,634,096)
Purchase of GIC - 16,482,039 (15,181,000) 1,301,039
Settlement from County
of San Bernardino 1.000.000 1.000.000
Balance before interest
earnings 46,477,019 16,482,039 707,885 63,666,943
• Interest earnings - 203.965 578.193 782.158
"-~~ Balance after interest
earnings 46,477,019 16,686,004 1,286,078 64,449,101
FMV adjustment - - (2,326) (2,326)
Less amounts held by
City Treasurer - - (3,8851 3 885
Balance as of year end $46.477.019 16.686.004 1.279.867 64.442.890
•
43
MUNICIPAL WATER DEPARTMENT
• OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Notes to Basic Financial Statements
(Continued)
(13) Net Assets
The following is a detailed breakdown of net assets.
Water Sewer "'
Total capital assets (net of accumulated
depreciation and accumulated amortization) $115,268,935 109,125,756
Less related debt:
Notes payable (9,157,873) (18,863,863)
Water bonds payable (75,000) - ;R
Certificates of participation - (27,732,673)
Add back:
Portion of debt offsetting debt service reserves - 3.550.530
Total invested in capital assets, net of related
. debt 106,036,062 66,079,750
Restricted Net Assets -Capital related fees 8,720,267 16,138,902
Unrestricted Net Assets 7.958.513 17.291.807
Total Net Assets $122.714.842
C"4
S~
Amounts restricted for debt service is calculated as follows:
Water Sewer
Cash and investments with fiscal agent restricted
for debt service $ - 3,550,530
Less portion of debt offsetting unexpended debt
proceeds held in the debt service amounts - 3
5(.50.530)
Q )
i
44
s
SUPPLEMENTARY INFORMATION
'_
45
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ti
46
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Board of Water Commissioners and Organization
As of July 1, 2006
MAYOR OF THE CITY OF SAN BERNARDINO
Patrick J. Morris
BOARD OF WATER COMMISSIONERS
Name Office
B. Warren Cocke President
Toni Callicott Commissioner
Louis A. Fernandez Commissioner
Judith W. Battey Commissioner
Norine I. Miller Commissioner
ADMINISTRATION
Stacey R. Aldstadt
General Manager
Robin L. Ohama
Deputy General Manager
Matthew H. Litchfield, P.E.
Director, Water Utility
John A. Perry, P.E.
Director, Water Reclamation
Don Shackelford
Director, Finance
ti Valerie K. Housel
Director, Environmental
And Regulatory Compliance
ORGANIZATION
The City of San Bemardino Municipal Water Department was formed in 1904 under the Charter
of the City of San Bernardino. The Department is governed by the Board of Water
Commissioners who are appointed by the Mayor of the City of San Bernardino. The Charter
gives the Board of Water Commissioners semi-autonomous authority to govern the Department
independent of the City Council. The Department operates two enterprise funds: the Water
Utility Enterprise Fund and the Sewer Utility Enterprise Fund. Water service encompasses the
City, with the exception of the east end, which is served by the East Valley Water District.
Sewer service encompasses all of the City of San Bemardino, East Va11ey Water District, City of
Loma Linda, the former Norton Air Force Base and Patton State Hospital.
47
I
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Insurance Coverage -~
As of June 30, .2006
Insurance coverage for the Department at June 30, 2006 is summarized below:
Multiple insurance companies and policies; all-risk property coverage, including
Earthquake and flood -July 1, 2005, to July 1, 2006
Primary limit: t?!
Commonwealth Insurance Company, Policy#US5760 $15,000,000
Excess limits:
RSUI Indemnity, Policy#NHD411246 2,500,000
Axis Surplus Ins. Co., Policy #ELF1146-05 7,500,000
Essex Insurance Company, Policy #ESP3798 6,000,000 `~'
RSUI Indemnity, Policy#NHD411429 7,500,000
Commonwealth Insurance Company, Policy #US5761 7,000,000
Undervvriter At Lloyds, Policy #GEP7163 2,500,000 ,_
Axis Surplus Ins. Co. Policy # ELF715150-05 2,000,000
RSUI, Policy #NHD411431 75,000,000
Pacific Indemnity Company, Policy #78357989; boiler and machinery
Coverage -July 1, 2005 to July 1, 2006
Per occurrence limit 10,000,000
American Altemative Insurance Co., Policy # SDISSK9100525-2; general
Liability, including bodily injury and property damage, personal injury and
Advertising injury, professional liability and wrong acts - 3
June 30, 2005 to June 30, 2006
Bodily injury and property damage
Per occurrence 1,000,000
Aggregate 3,000,000 ~
Damages to premises rented to you . ,,
Any one premises 1,000,000 '- -.
Personal injury and advertising injury
Per person 1,000,000
Aggregate 3,000,000
Employee benefits liability
Per person 1,000,000
Aggregate 3,000,000
Professional liability
Per claim 1,000,000
Aggregate 3,000,000
Wrongful acts
Per claim 1,000,000
Aggregate 3,000,000
American Alternative Insurance Co., Policy #SDSA900485-2/00; business
Automobile coverage -June 30, 2005 to June 30, 2006
Owned automobile liability limit 1,000,000
Hired/non-owned automobile liability 1,000,000
Hired car physical damage 50,000
Uninsured motorist liability 1,000,000
Medical 5,000
48
MUNICIPAL WATER DEPARTMENT OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Insurance Coverage {Continued)
As of June 30, 2006
Multiple insurance companies and policies; excess liability coverage -
June 30, 2005 to June 30, 2006
Primary limit:
American Alternative Insurance Company 10,000,000
Excess limits:
Evanston Insurance Company 5,000,000
St. Paul Surplus Lines Co. 4,000,000
American Intemational Specialty Lines, Policy # 26738997; pollution
Liability -October 30, 2004 to October 30, 2009 (each incident/aggregate)
Third-Party Claims, On-site Bodily Injury and Property Damage 5,000,000
Third-Party Claims, Off-site Clean-Up Resulting from New Conditions 5,000,000
Third-Party Claims, Off-site Bodily Injury and Property Damage 5,000,000
Travelers, Policy #104204117; employment practices liability -
October 30, 2005 to October 30, 2006 1,000,000
- Hartford Fire Insurance Company, Policy #72BPEAK4746; crime
.- coverages -March 25, 2000 until cancelled
Employee theft (each incident) 250,000
Theft, disappearance and destruction 250,000
American Intemational Specialty Lines, Policy #7783901; pollution
Legal liability clean-up cost cap -September 28, 2004 to March 23, 2035
Coverage A -Legal liability for pollution conditions 25,000,000
Coverage B -Consent decree required clean-up 150,000,000
The Department is self-insured through the City of San Bernardino for workers' compensation
liability and material damage to rolling stock.
49
• MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule of Water System Demographics
Water Production/Utilization (Cubic Feet) ,~
2005-2006 2004-2005 2003-2004
Water utilization (shown in cubic feet)
Water sold to direct customers 1,891,121,000 1,783,045,900 1,965,264,900
Water sold to other agencies 208,657,743 56,760,218 38,268,704
Water sold to or used by City 75,753,797 70,903,097 69,701,161
2,175,532,540 1,910,709,215 2,073,234,765 _
Loss and other factors 153,875,410 182,631,975 180,575,623
Total water sold, used or lost 2,329,407,950 2,093,341,190 2,253,810,388 ,~
Loss and other factors percentage 6.606% 8.724% .08 12%
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f
MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
i SCHEDULE OF WATER PRODUCTION
June 30, 2006
2005-2006 2004-2005 2003.2004
Total Water Total Water Total Water
Per 1,000 Per 1,000 Per 1,000
Amount Cubic Feet Amount Cubic Feet Amount Cubic Feet
Summary of total water
production and purchased cost
Total production, purchases, and - 2,329,408 - 2,093,341 - 2,253,810
supplemental
Production and pumping expenses $ 5,408,474 - 4,919,498 - 5.570,502 - !,
i
Total expense before deprecation 5,408,474 $2.32162 4,919,498 $2.35007 5,570,502 $2.47159
Depreciation of plant facilities 2,536,417 1.08887 2,324.233 1.11030 1,972,475 0.87517
Totals $ 7,944.891 $ 3.41069 $ 7,243,731 $ 3.46037 $ 7,542,977 $ 3.34677
Summary of costs per acre foot
Acre feet - 53,475.849 - 48,056.497 - 51,740.358
-'= Cost per acre feet before
depreciation $101.14 5102.37 - $107.66 -
Cost per acre feet inGuding
depreciation of plant facilities $148.57 - $150.73 - $145.79 -
' InGudes direct pumping and produGion expenses, and operations administration expenses.
(Dept 3040 - 3041)
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MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
SCHEDULE OF WATER RATES
Rates effective July 1, 2006, are summarized as follows:
Single and Mukiole Family Dwelling Units. Commercial. Landscape and Industrial Users
Meter Minimum
Size Monthly Charge
5/8" $8.32 ~
3/4" $11.10
1" $13.27
1-1/2" $23.81
y' $33.26
3^ $56.56
q" $96.02
g• $172.87
g" $259.26
10" $324.10
12" $388.98
All water usage, except municipal, will be billed at the rate of $0.91 per 100 cubic feet with no minimum allowance.
Elevation Zone Charge
Zone Charge per 100 cubic feet
1 $0.00
2 $0.06
3 $0.14
q $0.20
5 $0.30
g $0.47
This charge is base on the identified delivery costs associated with a specific elevation zone.
Assessment Districts
All water usage furnished for use by the City of San Bernardino for landscape assessment districts or funded
from other than the City's General Fund will be billed at the rate of $0.288 per 100 cubic feet.
Municipal Water Users
Water furnished for municipal use to the City of San Bernardino shall be exempt from all water service
charges as long as water usage does not exceed 110 percent of the fiscal year 1994/1995 water usage.
Water usage in excess of this amount is charged at $0.288 per 100 cubic foot
Enerav Surcharne
Effective July 5, 2001, all consumption, except municipal, shall be charged $0.05-per cubic foot to offset
the increased power costs to the entire service territory.
These rates were approved by the Board of W ater Commissioners on June 20, 2006.
53
MUNICIPAL WATER DEPARTMENT
- OF THE CITY OF SAN BERNARDINO, CALIFORNIA
-.
Schedule of Sundry Water Statistical Data
2005-2006 2004-2005
Production Percent Production Percent --
Pumping Plants in Cubic Feet Production in Cubic Feet Production
Antil Plant 94,600 0.00% 33,443,800 1.63°k f'I
Baseline 8 California Well 4,058,500 0.18% 12,249,100 0.60%
Cajon Boulevard Plant 156,173,000 7.00% 114,021,100 5.54%
Cajon Pass & Vincent Wells 1,568,900 0.07% 26,840,000 1.30%
Devil Canyon Plant 87,633,950 3.93% 94,388,390 4.59°k ''
EPA Wells -Newmark OU 670,111,400 30.06% 576,392,400 28.02°~
EPA Wells - Muscoy OU 577,040,000 25.89% 133,156,900 6.47%
40th Street WeII 1,311,500 0.06% 1,505,100 0.07°k ---
Gilbert Street Well 12,634,000 0.57% 43,913,100 2.14°k
Kenwood Wells 159,946,600 7.18% 153,162,100 7.45%
LeRoy Street Well 23,716,800 1.06% 59,151,700 2.86%
Lynwood Well 34,866,600 1.56% 38,705,300 1.88%
Lytle Creek Plant - 0.00% 5,509,700 0.27%
Mallory Well 35,182,700 1.58% 35,523,100 1.73%
Mill & "D" Streets Well 18,456,300 0.83% 20,305,400 0.99°h
Newmark Plant 122,521,500 5.50% 148,870,200 7.24°%
19th Street Plant 69,559,800 3.12% 129,585,600 6:30%
Olive & Garner Well 41,192,200 1.85% 96,972,900 4.71%
Perris Hill Plant 6,814,300 0.31% 17,526,200 0.85% ,
7th Street Well 3,916,700 0.18% 5,186,600 0.25%
Sierra Way & 16th Street Wells 210,000 0.01% 166,100 0.01°h
10th & "J" Street Well 67,220,600 3.02% 98,420,900 4.79% , ~
30th 8 Mountain View Wells 66,308,800 2.97% 116,906,300 5.68%
27th Street Well 14,396,300 0.65% 27,794,700 1.35% ~'~
Waterman Avenue Plant 54,028,000 2.42% 67,056,200 3.26%
Total Water Produced 2,228,963,050 100.00% 2,056,752,890 100.00%
Purchased water - , ;
East Valley Water District 100,444,900 36,588,300
Total Water Production 2,329,407,950 100.00% 2,093,341,190 100.00%
54
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2003-2004 2002-2003 2001-2002
Production Percent Production Percent Production Percent
in Cubic Feet Production in Cubic Feet Production in Cubic Feet Production
82,571,200 3.79% 55,968,400 2.70°h 70,400,200 3.28%
20,784,900 0.95% 16,895,500 0.82% 21,749,200 1.01%
98,009,400 4.50% 94,775,100 4.58% 112,510,200 5.24%
38,443,100 1.76% 72,855,700 3.52% 68,773,600 3.20%
123,324,880 5.66% 117,012,030 5.65% 109,735,500 5.11%
565,447,170 25.93% 502,864,300 24.28% 593,338,500 27.63%
- 0.00% - 0.00% - 0.00%
1,676,100 0.08% 1,569,000 0.08% 3,085,700 0.14%
83,912,300 3.85% 34,258,200 1.65% 49,751,700 2.32%
166,971,400 7.66% 62,409,200 3.01% 117,803,100 5.49%
60,969,500 2.80% 101,743,600 4.91% 29,554,700 1.38%
53,509,860 2.45% 95,388,500 4.61% 109,885,900 5.12%
31,152,100 1.43% 53,527,500 2.58% 55,204,600 2.57%
21,31.7,100 0.98% 10,662,600 0.51% 13,922,100 0.65%
14,140,800 0.65% 16,517,300 0.80°k 16,969,400 0.79%
158,321,800 7.26% 174,258,800 8.42% 185,990,500 8.66%
132,848,000 6.09% 182,126,500 8.80% 160,675,200 7.48%
115,058,398 5.28% 47,612,000 2.30% 102,798,600 4.79%
17,280,200 0.79% 18,211,200 0.88% 11,699,500 0.54%
37,796,200 1.73% 4,544,200 0.22% 6,108,700 0.28%
205,100 0.01% 422,900 0.02% 205,500 0.01%
129,074,500 5.92% 107,610,600 5.20°/a 142,552,700 6.64%
122,995,600 5.64% 187,466,000 9.05% 78,513,900 3.66%
31,616,500 1.45% 11,021,500 0.53°k 15,143,400 0.71%
72,891,380 3.34% 101,031,700 4.88% 70,918,400 3.30%
-~' 2,180,317,488 100.00% 2,070,752,330 100.00% 2,147,290,800 100.00%
73,492,900 55,962,500 105,745,800
2,253,810,388 100.00% 2,126,714,830 100.00% 2,253,036,600 100.00% i
55
,S
. - MUNICIPAL WATER DEPARTMENT '
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule - 1992 Certificates of Participation
San Bernardino Public Safety Authority r,
June 30,2006
EARLY PAY OFF
During Fiscal Year 2001, the 1992 Cert~cates of Participation were retired by an early call and payoff.
The total principal amount of $34,805,000 was paid off February 1, 2001. '~
An early call premium of $674,000 was incurred due to this transaction. This amount will be amortized
annually in the amount of $42,125 over a sixteen year period.
The unamortized discount balance of $191,401 will continue to be amortized annually in the amount of
$16,520 with the final payment of $9,681 due February 1, 2017. ~
Funds used for the Primary Hydraulic Reliability Project, remodel of the administration laboratory
. building and design of3A secondary treatment.
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. MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA
Schedule - 1998 Refunding Sewer Revenue Cert~cates of Participation
San Bernardino Public Safety Authority
June 30, 2006
Principal
Prncipal Unamortized Payments Interest
Date Due Payments Discounts (Net) Interest Total Rate
08/01/06 $ - - - 678,593 678,593 4.30%
02/01/07 1,910,000 7,257 1,902,743 678,593 2,581,336 4.30°h
08/01/07 - - - 637,528 637,528 5.00°k
02/01/08 2,010,000 6,760 2,003,240 637,528 2,640,768 5.00°k
08/01/08 - - - 587,278 587,278 4.50%
02/01!09 2,125,000 6,238 2,118,762 587,278 2,706,040 4.50°h
08/01/09 - - - 539,465 539,465 4.70%
02/01/10 2,240,000 5,687 2,234,313 539,465 2,773,778 4.70%
08/01/10 - - - 486,825 486,825 5.00%
02/01/11 2,365,000 5,105 2,359,895 486,825 2,846,720 5.00% ~
08/01/11 - - - 427,700 427,700 4.75%
_ 02/01/12 2,510,000 4,492 2,505,508 427,700 2,933,208 4.75% ~I
08/01/12 - - - 368,088 368,086 4.85% ~
02/01/13 2,650,000 3,840 2,646,160 368,088 3,014,248 4.85%
08/01/13 - - - 303,825 303,825 4.75°~ li,
02/01/14 2,805,000 3,152 2,801,848 303,825 3,105,673 4.75%
08/01!14 - - - 237,206 237,206 5.25%
02/01/15 2,965,000 2,424 2,962,576 237,206 3,199,782 5.25%
08/01/15 - - - 159,375 159,375 5.00%
02/01/16 3,155,000 1,655 3,153,345 159,375 3,312,720 5.00°k
08/01/16 - - - 80,500 80,500 5.00° ~
02/01!17 3,220,000 836 3,219,164 80,500 3,299,664 5.00%
$ 27,955,000 47,446 27,907,554 9,012,766 36,920,320
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61
• - MUNICIPAL WATER DEPARTMENT
OF THE CITY OF SAN BERNARDINO, CALIFORNIA "?
Bond Schedule -General Obligation Waterworks Bonds, Series C
June 30, 2006 ~-~
~9
Principal Interest
Date Due Payments Interest Total Rate ~
09/01/06 $ - 2,906 2,906 7.75% ,
03/01/07 10,000 2,906 12,906 7.75%
09/01/07 - 2,519 2,519 7.75%
03/01/08 10,000 2,519 12,519 7.75%
09/01 /08 - 2,131 2,131 7.75%
03/01/09 10,000 2,131 12,131 7.75% ax
09/01/09 - 1,744 1,744 7.75% '~
03/01/10 10,000 1,744 11,744 7.75%
09/01/10 - 1,356 1,356 7.75%
03/01/11 10,000 1,356 11,356 7.75%
09/01/11 - 969 969 7.75%
03101/12 10,000 969 10,969 7.75%
09/01/12 580 580 7.75%
03/01/13 15,000 580 15,580 7.75%
$ 75,000 24,410 99,410
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Bonds related to water system improvements for South San Bernardino Water District, -'`
which was acquired by the Department in 1991.
fit
Mayer iioffman Mt:~ann P.C.
An Independent CPA Finn
Conrad Government Services Division
2301 Dupont Drive, Suite 200
Irvine, California 92622
949-4742020 ph
1949-263-5520 fx
www.mhm•pc,com
Board of Water Commissioners
Municipal Water Department of the City of
San Bernardino, California
REPORT ON COMPLIANCE AND OTHER MATTERS AND ON
INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN
AUDtT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the Municipal Water Department of the City of San
Bernardino ("Department") as of and for the year ended June 30, 2006, and have issued our
report thereon dated October 25, 2006. We conducted our audit in accordance with auditing
standards generally accepted in the United States of America and the standards applicable to
financial audits contained in Government Auditing Standards, issued by the Comptroller
General of the United States.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Department's financial statements
are free of material misstatement, we pertormed tests of its compliance with certain provisions
of laws, regulations, contracts and grant agreements, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts, Such provisions
included those provisions of laws and regulations identified in the Guidelines for Comptroller
Audits of Califomia Redevelopment Agencies, issued by the State Controller and as interpreted
in the Suggested Auditing Procedures for Accomplishing Compliance Audits of Califomia
Redevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of
the California Society of Certified Public Accountants. However, providing an opinion on
compliance with those provisions was not an objective of our audit and, accordingly, we do not
express such an opinion. The results of our tests disclosed no instances of noncompliance or
other matters that are required to be reported under Govemment Auditing Standards.
Internal Control Over Financial Reoortina
In planning and performing our audit, we considered the Department's internal control over
financial reporting in order to determine our auditing procedures for the purpose of expressing
our opinion on the financial statements and not to provide an opinion on the internal control
over financial reporting. Our consideration of the internal control over financial reporting would
not necessarily disclose all matters in the internal control that might be a material weakness. A
material weakness is a reportable condition in which the design or operation of one or more of
the more internal control components does not reduce to a relatively low level the risk that
misstatements caused by error or fraud in amounts that would be material in relation to the
financial statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. We noted no matters
involving the internal control over financial reporting and its operation that we consider to be a
material weakness.
63
i
Board of Water Commissioners '
Municipal Water Department of the City of San Bernardino, California "~
Page Two
This report is intended solely for the information and use of the Board of Water Commissioners
and management of the Department and is not intended to be and should not be used by f
anyone other than these specified parties.
Irvine, California
October 25, 2006 "'
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